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Thursday, November 24, 2005

Oh No! We're Headed Back to Smith

I attended the Southern Economics Association meeting over the past weekend. There, I had a very distressing conversation with two young "Austrians." Both of them were advocating wealth maximization as the proper normative criterion for policy evaluation. This is a regression to the views of Adam Smith, and an idea that I should have thought was utterly discredited by the work Menger, Mises, Hayek, Kirzner, and Rothbard.

The two problems with wealth maximization as a norm are:1) The notion of "society's wealth" is itself incoherent. We can say how wealthy an individual is because he potentially could sell his assets on the market, and we can make a good guess as to what amount of money their sale would bring. But who is "society" going to sell its assets to?2) It recommends any policy that increases some measure of wealth, whatever the means it employs. I have no doubt that the US could increase the material wealth available to residents by forcing unemployed people into slave labor camps. The "goodness" of such a policy is the necessary conclusion of the wealth-maximization criterion, and it is only met by a lot of evasion on the part of those advocating it.

One of them declared to me "it's the best measure we have." But if the "best measure we have" is rubbish, then why not just admit that we can't measure anything resembling "social wealth." We're the folks who showed this can't be done, remember? It's as though, after proving you can't build a perpetual motion machine, we then signed onto a project designed to create one, because "it's the best effort available."

Ben Powell -- an Austrian who hasn't forgotten what the core of our views is -- offered the following tale to the two wealth maximizers:

A young economist travels to a remote, seaside Mexican village. While hanging around the docks, he spies a local fisherman coming ashore with a great catch. He stops the fellow and asks him what he does for a living.

"I fish for a couple of hours a day."

"Then what do you do with the rest of your time?"

"I go home, have a little tequila, make love to my wife, and then play some music in the cafes at night."

"No, no," the economist says, "this is no good. You're a great fisherman, and we're going to make you wealthy. First thing is to get you some employees and more boats. Then we'll get you a contract with an American cannery. Next, you'll open your own canneries in California. Soon, you'll be the top fish supplier in the world. You'll be a multimillionaire."

"And then what will I do?"

"Why, you can retire to a little seaside Mexican village, fish for a couple of hours a day, go home, drink a little tequila, make love to your wife, and then go out and play in the cafes at night!"

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